Covidien (COV) Q3 2012 Earnings Call July 26, 2012 8:30 am ET Executives Coleman N. Lannum - Vice President of Investor Relations Jose E. Almeida - Chairman of the Board, Chief Executive Officer and President Charles J. Dockendorff - Chief Financial Officer and Executive Vice President Analysts David H. Roman - Goldman Sachs Group Inc., Research Division David R. Lewis - Morgan Stanley, Research Division Michael N. Weinstein - JP Morgan Chase & Co, Research Division Robert A. Hopkins - BofA Merrill Lynch, Research Division Matthew J. Dodds - Citigroup Inc, Research Division Thomas J. Gunderson - Piper Jaffray Companies, Research Division Joanne K. Wuensch - BMO Capital Markets U.S. Matthew O'Brien - William Blair & Company L.L.C., Research Division Matthew Taylor - Barclays Capital, Research Division Kristen M. Stewart - Deutsche Bank AG, Research Division Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division Anthony Petrone - Jefferies & Company, Inc., Research Division Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division Presentation Operator
We will be making some very brief introductory comments and then spend most of the time this morning, as usual, answering your questions.The press release, with details of our third quarter results, was issued earlier this morning and is available on our website and on the newswires. During today's call, we'll make some forward-looking statements, and it's possible that actual results could differ materially from our current expectations. Please note that under the Safe Harbor rules, we are under no obligation to update these forward-looking statements even if actual results or our future expectations change materially. We ask that you please refer to the cautionary statements contained in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. We'll also discuss some non-GAAP financial measures with respect to our performance today. A reconciliation of non-GAAP to GAAP measures can be found in our press release and its related financial tables as well as in the Investor Relations section of our website covidien.com. For the third quarter, we reported GAAP diluted earnings per share of $0.93. And after adjusting for certain specified items, our non-GAAP earnings came in at $1.07 per share. Now, I'll turn it over to Joe who'll go into more detail on the third quarter results. Joe? Jose E. Almeida Thanks, Cole. We delivered a very solid performance in the third quarter. Sales were on plan, up 6% operationally and 3% as reported. Our recent acquisitions contributed about 1 point of revenue growth in the quarter. We again registered year-over-year improvement in adjusted gross and operating margins. In the Medical Devices segment, we had an outstanding quarter with 8% operational growth led by Energy and Vascular products. In the Pharmaceuticals business, we again registered very good performance for Specialty Pharmaceuticals paced by PENNSAID and EXALGO. And in Supplies, sales were somewhat above a year ago.
Before I go into more detail on our third quarter results, I'd like to spend a moment discussing the overall health care products marketplace. In the U.S., we have not seen any significant change in volumes, procedures or utilization in the last few months. Volumes remained depressed, largely due to continued high levels of unemployment and delays in elective procedures.In Europe, austerity programs and the economic slowdown continue to pressure all of med tech. Emerging markets are growing rapidly and we expect this to continue as access to health care expense, and the demographic trends are favorable. Our results this quarter showed the positive impact of our broad portfolio and global leverage. In the U.S., sales grew 6%, driven by very strong 9% increase in the -- for Medical Devices. In Japan, we delivered double-digit growth with good gains in Energy, Vascular and Stapling products. We also reached solid products in other developed markets including Canada and Australia. In our emerging markets comprising Eastern Europe, Middle East and Africa, Asia and Latin America, sales again grew at a double-digit pace with broad-based gains led by Endomechanical, Soft Tissue Repair and Energy products. We registered exceptional growth in the BRIC countries, led by China and Brazil, where we will continue to make incremental investments to accelerate growth and expand our product offerings. This positive progress was partially offset by somewhat slower growth in our European business, which was up in the low single digits operationally this quarter. Across the business, we saw a significant slowdown in Spain, the sales grew in many other markets despite the difficult conditions. We believe we have the right mix of products and technologies to be successful in the European marketplace. As now I get into my comments on individual product categories, I would discuss our growth on an operational basis excluding the negative impact of foreign currency. I'm doing this because I believe they provide of a better picture of our progress.
In our large Endomechanical business, stapling products continued to perform very well with a double-digit increase led by the innovative Tri-Staple reloads. We experienced a strong demand for Tri-Staple as we continue to grow above the market and gain incremental share in stapling.Read the rest of this transcript for free on seekingalpha.com